Car Loan Refinancing: The What, How, When, Why Of Car Loan Refinancing

What is car loan refinancing?

The word ‘refinancing’ usually brings to mind mortgage repayments. Car loan refinancing is less common, but works on some of the same principles. Lenders do not often discuss refinancing options, but in some cases an auto refinance could save you a significant amount of money over the lifetime of your loan. In essence, refinancing transfers your current, outstanding loan into another debt obligation – one with different terms that are more favorable for you, the customer. Engaging the services of another provider to help you pay off your loan enables you to negotiate terms and rates that could see your monthly repayments lowered and hence have you pay back less overall.

How do I do it?

In many cases, to qualify for car loan refinancing, the amount of the current loan cannot be greater than the car’s overall value, and the car must be under five years old. You should not approach your current lender for a deal; instead, compare the deals offered by a range of refinancing lenders. Compare the APRs and get a free quote. Ensure that you read the terms and conditions of every deal carefully, and be sure to factor in the length of the loan when deciding to refinance – look for deals that will enable you to shorten your repayment time as well as deals with lower interest rates. However, if you are in danger of defaulting on your loan, you should opt for a longer repayment time, which will greatly reduce your monthly repayments.

When should I refinance?

If you feel that your repayments are too high, it is worth investigating refinancing car loans as an option – many people are surprised by the amount they can save on loan repayments with some simple comparison work. If the market rate of interest has been falling, it is likely that you will be able to get a better deal than the one taken out with your purchase. However, if you only have a year remaining on your repayments, the value of reducing your loan will be limited. To qualify, you may need to make extra repayments until the value of your loan is less than the value of the car before you can apply.

Why should I refinance?

If you have had a bad credit rating in the past, you may have been offered a higher interest rate, based on this history. If you have made all of your previous loan repayments for the past 12 months promptly and on time, your credit score will likely have improved, and you would be in a position to get a loan with a lower rate of interest. The benefits refinancing car loans are that it will help to free up your money, lower the repayments required each month, and shorten the term of your repayment. Savings of $20-50 per month will add up over time – investigate today and see how much you could save.